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Chapter-VI

Inventory Management and Control

• Meaning and Definition of Inventory

• Management of Inventories

• Objectives of Inventory Management

• Problems faced by Management

• Inventory Control

• Inventory Control Techniques

ABC Analysis of Inventories

Fixation of Norms of Inventory Holdings Pricing of Raw Materials Perpetual Inventory System

• Factory influences the Level of Each Component of Inventory

Raw Material Inventory

Work-in-Process Inventory

Finished Goods Inventory

Stores and Spares Inventory

• Measures of Effectiveness of Inventory Management

• Control and Review

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Inventories occupy the most strategic position in the

structure of working capital of most business enterprises. It

constitutes the largest component of current asset in most

business enterprises. In the sphere of working capital, the

efficient control of inventory has passed the most serious

problem to the cement mills because about two-third of the

current assets of mills are blocked in inventories. The turnover

of working capital is largely governed by the turnover of

inventory. It is therefore quite natural that inventory which

helps in maximize profit occupies the most significant place

among current assets.

Meaning and Definition of Inventory

In dictionary meaning of inventory is a “detailed list of

goods, furniture etc.” Many understand the word inventory, as

a stock of goods, but the generally accepted meaning of the

word ‘goods’ in the accounting language, is the stock of

finished goods only. In a manufacturing organization,

however, in addition to the stock of finished goods, there will

be stock of partly finished goods, raw materials and stores. The

collective name of these entire items is ‘inventory’.

The term ‘inventory’ refers to the stockpile of production

a firm is offering for sale and the components that make up the

production.

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The inventory means aggregate of those items of tangible

personal property which

(i) are held for sale in ordinary course of business.

(ii) are in process of production for such sales.

(iii) they are to be currently consumed in the production of

goods or services to be available for sale.

Inventories are expandable physical articles held for

resale for use in manufacturing a production or for

consumption in carrying on business activity such as

merchandise, goods purchased by the business which are

ready for sale.

It is the inventory of the trader who dies not manufacture

it.

Finished Goods:

Goods being manufactured for sale by the business

which are ready for sale.

Materials:

Articles such as raw materials, semi-finished goods or

finished parts, which the business plans to incorporate

physically into the finished production.

Supplies:

“Article, which will be consumed by the business in its

operation but will not physically as they are a part of the

production.

The short inventory may be defined as the material,

which are either saleable in the market or usable directly or

indirectly in the manufacturing process. It also includes the

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items which are ready for making finished goods in some other

process or by comparing them either by the concern itself

and/or by outside parties. In other words, the term inventory

means the material having any one of the following

characteristics. It may be

1. saleable in the market,

2. directly saleable in the manufacturing process of the

business,

3. usable directly in the manufacturing process of the

undertaking, and

4. ready to send to the outside parties for making usable

and saleable productions out of it.

In the present study raw materials, stores and spare

parts, finished goods and work-in-process have been included

inventories. Firm also manufactures inventory to supplies.

Supplies included office and plant cleaning materials

(soap, brooms etc. oil, fuel, light bulbs and the likes). These

materials do not directly enter into the production process, but

are necessary for production process. Inventory constitutes the

most significant part of current assets of a large majority of

companies in India. For example, on an average inventories are

more than 57 per cent of current assets in public limited

companies and about 60.5per cent in government companies in

India. Therefore it is absolutely imperative to manage

inventories efficiently and effectively in order to avoid

unnecessary investment in them. An undertaking neglecting

the management of inventories will be jeopardizing its long

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run profitability and may fail ultimately. It is possible for a

company to reduce its level of inventories to a considerable

degree e.g. 10 to 20 per cent without any adverse effect on

production and sales.

Management of Inventories

Inventories consist of raw materials, stores, spares,

packing materials, coal, petroleum products, works-in-progress

and finished products in stock either at the factory or deposits.

It is most important component of current assets in the cement

industry and was 42 per cent of total current assets for sample

companies as on March 31, 2004. In other industries too it is

very important component of total investment.

The maintenance of inventory means blocking of funds

and so it involves the interest and opportunity cost to the firm.

In many countries specially in Japan great emphasis is placed

on inventory management. Efforts are made to minimize the

stock of inputs and outputs by proper planning and forecasting

of demand of various inputs and producing only that much

quantity which can be sold in the market.

The inventory cost is not only interest on stocks but also

cost of store building for storage, insurance and obsolesce and

movement of inputs from place of storage to the factory where

the materials have to be finally used to convert them into

finished goods. In japan industries have adopted concept of JIT

(Just in Time) and components, materials are received when

required for which detailed instructions are given to suppliers.

There are many engineering companies who receive

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components directly at assembly point and that too only for 3-4

hours requirements at a time. Even in case of bulk materials

like iron ore, which is imported from abroad, the minimum

possible inventory is kept.

As against this by and large in India the inventory of

coal, raw materials and packing materials is very high and

many items become junk or obsolete causing heavy loss to the

enterprise. Lack of inventory planning in India has been

pointed out by various committees but due to uncertainties in

supplies, problem of timely receipt of railway wagons, lack of

planning and unreliable suppliers the investment in

inventories is quit high. The fluctuation in demand affects

inventory of finished product of which cement industry has

been a victim many times.

The situation in cement industry has been analysed in

this chapter after studying the principles of inventory control

and relating it with cement industry.

In case of raw materials the first requirement is to study

lead time between the date of order and receipt in the factory

and same is applicable in case of coal.

In case of cement industry the basic raw material i.e. lime

stone is not purchased from the market but form one’s own

queries which are within 10 to 15 Km distance from factory and

only in few cases distance is more upto 50 Km. It is transported

to cursing mills by trucks, rail or overhead ropeways to the

factory. The only uncertainty is with regard to problem of

quarrying in quarries, which may be affected due to labour

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problem, problem in supplies of electricity or explosives. But in

spite of these factors industry feels that 3-4 days of stock of raw

material is enough. This, from any standard is on the high side

when self-produced raw material is used. Actually for ideal

situation there should be stock for a few hours, requirement

and at the most for one day need. The industry is keeping

larger stocks of limestone because of uncertainties in quarrying

and transportation.

Objectives of Inventory Management

The primary objectives of inventory management are:

(i) To minimize the possibility of disruption in the

production schedule of a firm for want of raw material,

stock and spares.

(ii) To keep down capital investment in inventories.

So it is essential to have necessary inventories. Excessive

inventory is an idle resource of a concern. The concern should

always avoid this situation. The investment in inventories

should be just sufficient in the optimum level. The major

dangers of excessive inventories are:

(i) the unnecessary tie up of the firm’s funds and loss of

profit.

(ii) excessive carrying cost, and

(iii) the risk of liquidity.

The excessive level of inventories consumes the funds of

business, which cannot be used for any other purpose and thus

involves an opportunity cost. The carrying cost, such as the

cost of shortage, handling insurance, recording and inspection,

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are also increased in proportion to the volume of inventories.

This cost will impair the concern profitability further.

On the other hand, a low level of inventories may result

in frequent interruptions in the production schedule resulting

in under-utilization of capacity and lower sales. The aim of

inventory management thus should be to avoid excessive

inventory and inadequate inventory and to maintain adequate

inventory for smooth running of the business operations.

Efforts should be made to place orders at the right time with

the right source to purchase the right quantity at the right price

and quality. The effective inventory management should

(i) maintain sufficient stock of raw material in the period

of short supply and anticipate price changes.

(ii) ensure a continuous supply of material to production

department facilitating uninterrupted production.

(iii) minimize the carrying cost and time.

(iv) maintain sufficient stock of finished goods for smooth

sales operations.

(v) ensure that materials are available for use in

production and production services as and when

required.

(vi) ensure that finished goods are available for delivery to

customers to fulfil orders, smooth sales operation and

efficient customer service.

(vii) minimize investment in inventories and minimize the

carrying cost and time.

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(viii) protect the inventory against deterioration,

obsolescence and unauthorized use.

(ix) maintain sufficient stock of raw material in period of

short supply and anticipate price changes.

(x) control investment in inventories and keep it at an

optimum level.

Problems faced by management:

(i) To maintain a large size inventories for efficient and

smooth production and sales operation.

(ii) To maintain only a minimum possible inventory

because of inventory holding cost and opportunity

cost of funds invested in inventory.

(iii) Control investment in inventories and keep it at the

optimum level.

Inventory management, therefore, should strike a balance

between too much inventory and too little inventory. The

efficient management and effective control of inventories help

in achieving better operational results and reducing investment

in working capital. It has a significant influence on the

profitability of a concern.

Inventory Control

Inventory control is concerned with the acquisition,

storage, handling and use of inventories so as to ensure the

availability of inventory whenever needed, providing adequate

provision for contingencies, deriving maximum economy and

minimizing wastage and losses.

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Hence Inventory control refers to a system, which

ensures the supply of required quantity and quality of

inventory at the required time and at the same time prevent

unnecessary investment in inventories.

It is one of the most vital phase of material management.

Reducing inventories without impairing operating efficiency

frees working capital that can be effectively employed

elsewhere. Inventory control can make or break a company.

This explains the usual saying that “inventories” are the

graveyard of a business.

Designing a sound inventory control system is in a large

measure for balancing operations. It is the focal point of many

seemingly conflicting interests and considerations both short

range and long range.

The aim of a sound inventory control system is to secure

the best balance between “too much and too little.” Too much

inventory carries financial rises and too little reacts adversely

on continuity of productions and competitive dynamics. The

real problem is not the reduction of the size of the inventory as

a whole but to secure a scientifically determined balance

between several items that make up the inventory.

The efficiency of inventory control affects the flexibility of

the firm. Insufficient procedures may result in an unbalanced

inventory. Some items out of stock, other overstocked,

necessitating excessive investment. These inefficiencies

ultimately will have adverse effects upon profits. Turning the

situation round, difference in the efficiency of the inventory

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control for a given level of flexibility affects the level of

investment required in inventory. The less efficient is the

inventory control, the greater is the investment required.

Excessive investment in inventories increase cost and reduce

profits, thus, the effects of inventory control of flexibility and

on level of investment required in inventories represent two

sides of the same coin.

Control of inventory is exercised by introducing various

measures of inventory control, such as ABC analysis fixation of

norms of inventory holdings and reorder point and a close

watch on the movements of inventories.

Inventories Control Techniques

ABC Analysis of Inventories

The ABC inventory control technique is based on the

principle that a small portion of the items may typically

represent the bulk of money value of the total inventory used

in the production process, while a relatively large number of

items may from a small part of the money value of stores. The

money value is ascertained by multiplying the quantity of

material of each item by its unit price.

According to this approach to inventory control high

value items are more closely controlled than low value items.

Each item of inventory is given A, B or C denomination

depending upon the amount spent for that particular item. “A”

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or the highest value items should be under the tight control

and under responsibility of the most experienced personnel,

while “C” or the lowest value may be under simple physical

control.

It may also be clear with the help of the following

examples:

“A” Category – 5% to 10% of the items represent 70% to 75%

of the money value.

“B” Category – 15% to 20% of the items represent 15% to 20%

of the money.

“C” Category – The remaining number of the items represent

5% to 10% of the money value.

The relative position of these items show that items of

category A should be under the maximum control, items of

category B may not be given that much attention and item C

may be under a loose control.

Particulars A item B item C item

Control

Requirement

Check

Expenditure

Posting

Safety Stock

Tight

Exact

Close

Regular

Industrial

Low

Moderate

Exact

Some

Some

Individual

Medium

Loose

Estimated

Little

No

Group/none

Lare

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100

80 A items

60 B items

40 C items

20

20 40 60 80 100

After classification, the items are ranked by their value

and then the cumulative percentage of total value against the

percentage of item are noted. A detailed analysis of inventory

may indicate above figure that only 10 per cent of item may

account for 75 per cent of the value, another 10 per cent of item

may account for 15 per cent of the value and remaining

percentage items may account for 10 per cent of the value. The

importance of this tool lies in the fact that it directs attention to

the key items.

Advantages of ABC Analysis

1. It ensures a closer and a more strict control over such

items, which are having a sizable investment in there.

2. It releases working capital, which would otherwise have

been locked up for a more profitable channel of

investment.

3. It reduces inventory-carrying cost.

4. It enables the relaxation of control for the ‘C’ items and

thus makes it possible for a sufficient buffer stock to be

created.

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5. It enables the maintenance of high inventory turn over

rate.

Fixation of Norms of Inventory Holdings

Either by the top management or by the materials

department could set the norms for inventories. The top

management usually sets monitory limits for investment in

inventories. The materials department has to allocate this

investment to the various items and ensure the smooth

operation of the concern. It would be worthwhile if norms of

inventories were set by the management by objectives, concept.

This concept expects the top management to set the inventory

norms (limit) after consultation with the materials department.

A number of factors enter into consideration in the

determination of stock levels for individual items for the

purpose of control and economy. Some of them are:

1. Lead time for deliveries.

2. The rate of consumption.

3. Requirements of funds.

4. Keeping qualities, deterioration, evaporation etc.

5. Storage cost.

6. Availability of space.

7. Price fluctuations.

8. Insurance cost.

9. Obsolescence price.

10. Seasonal consideration of price and availability.

11. EOQ (Economic Order Quantity), and

12. Government and other statuary restriction

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Any decision involving procurement storage and uses of

item will have to be based on an overall appreciation of the

influence of the critical ones among them. Material control

necessitates the maintenance of inventory of every item of

material as low as possible ensuring at the same time, its

availability as and when required for production. These twin

objectives are achieved only by a proper planning of inventory

levels. It the level of inventory is not properly planned, the

results may either be overstocking or understocking. If a large

stock of any item is carried it will unnecessarily lock up a huge

amount of working capital and consequently there is a loss of

interest. Further, a higher quantity than what is legitimate

would also result in deterioration. Besides there is also the risk

of obsolescence if the end product for which the inventory is

required goes out of fashion. Again, a large stock necessarily

involves an increased cost of carrying such as insurance, rent

handling charges. Under stocking which is other extreme, is

equally undesirable as it results in stock outs and the

consequent production holds ups. Stoppage of production in

turn, cause idle facility cost. Further, failure to keep up

delivery schedules results in the loss of customers and

goodwill. These two extreme can be avoided by a proper

fixation of two important inventory level viz, the maximum

level and the minimum level. The fixation of inventory levels is

also known as the demand and supply method of inventory

control.

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Carrying too much or too little of the inventories is

detrimental to the company. If too little inventories are

maintained, company will have to encounter frequent stock

outs and incur heavy ordering costs. Very large inventories

subjects the company to heavy inventory carrying cost in

addition to unnecessary tie up of capital.

An efficient inventory management, therefore, requires

the company to maintain inventories at an optimum level

where inventory costs are minimum and at the same time there

is no stock out which may result in loss of sale or stoppage of

production. This necessitates the determination of the

minimum and maximum level of inventories.

Minimum Level

The minimum level of inventories of their reorder point

may be determined on the following bases:

1 Consumption during lead-time.

2 Consumption during lead-time plus safety stock.

3 Stock out costs.

4 Customers irritation and loss of goodwill and

production hold costs.

To continue production during Lead Time it is essential

to maintain some inventories. Lead Time has been defined as

the interval between the placing of an order (with a supplier)

and the time at which the goods are available to meet the

consumer needs.

There are sometimes fluctuations in the lead-time and/

or in the consumption rate. If no provision is made for these

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variations, stock out may take place-causing disruption in the

production schedule of the company. The stock, which takes

care to the fluctuation in demand, varies in lead-time and

consumption rate is known as safety stock. Safety stock may be

defined as the minimum additional inventory, which serves as

a safety margin or buffer or cushion to meet an unanticipated

increase in usage resulting from an unusually high demand

and or an uncontrollable late receipt of incoming inventory. It

can be determined on the basis of the consumption rate, plus

other relevant factor such as transport bottleneck, strikes or

shutdowns.

In the case of uncertainly, the probabilistic approach may

be applied to determine the safety margin. To avoid stock out

arising out of such eventualities, companies always carry some

minimum level of inventories including safety stock. Safety

stock may not be static for all the times. A change in the

circumstances and in the nature of industry demand,

necessitates are adjusted in its level. In this study an effort has

been made to examine how the current companies determine

their minimum level for re-order inventories, safety stock,

whether a level of study is maintained throughout the year or

not.

For each type of inventory a maximum level is set that

demand presumably will not exceed as well as a minimum

level representative a margin of safety required to prevent out

of stock condition. The minimum level also governs the

ordering point. An order to sufficient size is placed to bring

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inventory to the maximum point when the minimum level is

reached.

Maximum Level

The upper limit beyond which the quantity of any item is

not normally allowed to rise is known as the “Maximum

Level”. It is the sum total of the minimum quantity, and ECQ.

The fixation of the maximum level depends upon a number of

factors, such as, the storage space available, the nature of the

material i.e. chances of deterioration and obsolescence, capital

outlay, the time necessary to obtain fresh supplies, the ECQ,

the cost of storage and government restriction.

Re-Order Level

Also known as the ‘ordering level’ the reorder level is

that level of stock at which a purchase requisition is initiated

by the storekeeper for replenishing the stock. This level is set

between the maximum and the minimum level in such a way

that before the material ordered for are received into the stores,

there is sufficient quantity on hand to cover both normal and

abnormal circumstances. The fixation of ordering level

depends upon two important factors viz, the maximum

delivery period and the maximum rate of consumption.

Re-Order Quantity

The quantity, which is ordered when the stock of an item

falls to the reorder level, is know as the reorder quantity or the

EOQ or the economic lot size. Although it is not a stock level as

such, the reorder quantity has a direct bearing upon the stock

level in as much as it is necessary to consider the maximum

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and minimum stock level in determining the quantity to be

ordered. The re-order quantity should be such that, when it is

added to the minimum quantity, the maximum level is not

exceeded. the re-order quantity depends upon two important

factors viz, order costs and inventory carrying costs. It is,

however, necessary to remember that the ordering cost and

inventory carrying cost are opposed to each other. Frequent

purchases in small quantities, no doubt reduce carrying cost,

but the ordering costs such as the cost inviting tenders of

placing order and of receiving and inspection, goes up. If on

the other hand purchases are made in large quantities, carrying

costs, such as, the interest on capital, rent, insurance, handling

charges and losses and wastage, will be more than the ordering

costs. The EOQ is therefore determined by balancing these

opposing costs.

EOQ

Cost

Ordering cost

Carrying Cost

Units Per Order

Economy Order Quantity

The EOQ refers to the order size that will result in the

lowest total of order and carrying costs for an item of

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inventory. If a firm place unnecessary orders it will incur

unneeded order costs. If a firm places too few order, it must

maintain large stocks of goods and will have excessive

carrying cost. By calculating an economic order quantity, the

firm identifies the number of units to order that result in the

lowest total of these two costs.

The constraints and assumption followed:

1. Demand is known-- Using past data and future

plans a reasonably accurate prediction of demand can often be

made. This is expressed in unit sold in a year.

2. Sales occur at a constant rate-- This model may be

used for goods that are sold in relatively constant amount

throughout the year. A more complicated model is needed for

firms whose sales fluctuate in response to there seasonal

cyclical factors.

3. Cost of running of goods are ignored-- Cost

associated with storage, delays or lost sales are not considered.

These costs are considered in the determination of safety level

in the re-order point subsystem.

4. Safety stock level is not considered-- The safety

stock level is the minimum level of inventory that the firm

wishes to hold as a protection against running out. Since the

firm must always be above this level the EOQ need not be

considered the safety stock level.

Total Ordering Cost (TOC)=(A/Q)*O

Average Inventory=Q/2

Total Carrying Cost (TCC)=(Q/2)*C

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Total Inventory Cost=TOC+TCC

Total Cost=(AO/2)+(QC/2)

Where A=total annual demand

Q=Quantity order in units

O=Order cost per order

C=Carrying cost per unit

The basic formula is EOQ = 2(U)(OC) CC%PP Where 2=mathematical factor that occurs during the deriving

of the formula, U-Units sold per year, a forecast provided by

the marketing department. OC=Cost of placing each order for

more inventory provided by cost accounting. CC% = Inventory

carrying cost expressed as a percentage of the average value of

the inventory, an estimate usually provided by cost accounting.

PP = Purchase price per each unit of inventory supplied by the

purchasing department.

Trial and error approach

Select a number of possible lot (Order) sizes to purchase,

then determine the total cost for each lot size chosen, now

select the ordering quantity that minimizes the total cost.

Quantity Discount and Order Quantity

The standard EOQ analysis is based on the assumption

that the price per unit remains constant irrespective of the

order size. When quantity discount are available which is often

the case, price per unit is influenced by the ordered quantity.

This violates the applicability of the EOQ formulas. However

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the EOQ framework can still be used as a starting point for

analyzing the problem.

To determine the optimal order size when quantity

discount is available, the following procedures may be

followed:

1. Determine the order quantity using the standard EOQ

formula assuming no quantity discount.

2. If Q enable the firm to get quantity discount then it

represents the optimal order size.

3. If Q is less then the minimum order size required for

quantity discount (call it-G2) compute to change in profit

as a result of increasing the order quantity from O1 to O2

as follows.

=AD+[A/Q1-A/Q2] O-[Q2((P-D)/2-(Q1PC/2)

= Change in profit, A = total demand, D = discount

per unit when quantity discount in available, Q1 = EOR

assuming no discount, Q2 = minimum order size required

for quantity discount, O = order cost, P = Purchase price

without discount, C = carrying cost

4. If change in profit is positive = Q2

If change in profit is positive = Q1

Stock Level Sub-system

This system keeps track of the goods held by the firm, the

insurance of goods, and the arrival of order. It is made up of

the records accounting for the goods in stock. Thus the stock

level subsystems maintain record of the current level of

inventory for any period of time, the current level is calculated

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by taking the beginning inventory, adding the inventory

received and subtracting the cost of goods sold. When ever

those subsystems reports that an item is at a below the recorder

pt level, the firm will begin to place an order for the item.

UNITS

Maximum

Inventory

Recorder point 1

1960 1 1 EOQ= 1 1000 1 Units 1260 1120 980

840 LEAD TIME 1 2 3 4 5 6 7 8 9 10 11 12 13 14

Uncertainty and Safety Stock

In practice, the demand or usage of inventory is not

generally known with certainty. Usually it fluctuates at a given

period of time. In this case formula is (Maximum daily usage

rate x Maximum lead time) – (Average daily usage rate x

Average lead time).

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Reorder Point

The reorder point is the level of inventory at which the

firm places an order in the amount of EOQ. If the firm places

the order when the inventory reaches the reorder point, the

new goods will arrive before the firm runs out of goods to sell.

In designing reorder point subsystem, three items of

information are needed as inputs to the subsystem.

1. Usage rate-- This is the rate per day at which the item is

consumed in production or sold to customers. It is expressed in

units. It may be calculated by dividing annual sales by 365

days. If the sales are 50,000 units the usage rate is 50,000/365 =

137 Units per day.

2. Lead time-- This is the amount of time between placing

an order and receiving goods. This information is usually

provided by the purchasing department. The time to allow for

an order to arrive may be estimated from a check of the

company’s record and the time taken in the past for different

suppliers to fill orders.

3. Safety stock-- The minimum level of inventory may be

expressed in terms of several days’ sales. The level can be

calculated by multiplying the usage rate and time in the

number of days that the firm wants to hold as a protection

against shortages.

Re-order point = (Usage rate)(Lead time + Days of safety)

= (Lead Time x Consumption rate) + Safety stock.

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The probabilistic approach is found to be cumbersome

and unfeasible for a multi period problem. It is proposed an

order point whereby an order is placed. When inventory

reaches so many units (See Arthur Snynder, “Principle of

inventory management,” Financial Executive, 32 (April 64 (13-

21);

Re-order point S (L)+F√SR(L)

L = Lead Time

R = Average number of units per order

F = Stock out acceptance factor.

The foregoing analysis is based on certain simplifying

assumption. In the real worked some additional consideration

ought to be taken into account:

(i) Anticipated scarcity of raw material

(ii) Expected price charge

(iii) Obsolescence risk

(iv) Government restriction on inventory

(v) Competitive market.

Pricing of Raw Materials

When issues are made out of various lots purchased at

varying prices, the problem arises as to which of the receipt

price should be adopted for valuing the materials requisitions.

1. First in first out

Materials received first will be issued first. The price of

the earliest consignment is taken first and when that

consignment is exhausted the price of the next consignment is

adopted and so on. This method is suitable in times of falling

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prices, because the material charge to production will be high

while the replacement cost of materials will be low.

2. Last in first out

Materials received last will be issued first. The price of

the last consignment is taken first and when that consignment

is exhausted the price of the second last consignment is

adopted and so on. In timing of rising prices this method will

show a charge to production, which is closely related to current

price levels provided that the last purchase is made recently.

3. Weighted average cost method

Under this method, material issued is priced at the

weighted average cost of material in stock:

WAC = Value of material in stock/Quantity in stock.

4. Standard price method

Under this method a standard price is predetermined.

The price of issues predetermined for a stated period taken into

account all the factors affecting price such as anticipated

market trends, transportation charges, and normal quantity of

purchase. Standard prices are determined for each material and

material requisition are priced at standards irrespective of the

actual purchase price. Any difference between the standard

and actual price results in materials price variance.

5. Current price

According to this method, material issued is priced at

their replacement or realizable price at the time of issue. So the

cost at which identical material could be purchased from the

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market should be ascertained and used for valuing material

issues.

Perpetual Inventory System

Another method of inventory control is the maintenance

of inventory control on a continuous basis. After the material

are received into the stores, the storekeeper will arrange for the

storing of each item in the allotted rack, bin, shelf or other

receptacles and attach a card to each bin for the purpose of

making entries there-in, relating to the receipts, issues and

balance. The bin card or the locker card, this becomes a

perpetual inventory record for each item of stores. If the stores

balance is recorded on continuous basis after every receipt and

issue, the record is said to be one of perpetual inventory and

the method of recording is called the perpetual inventory

system. Thus the perpetual inventory is a method of recording

store balance after every receipt and issue to facilitate regular

checking and to obviate closing down for stock locking

As a perpetual inventory record, the bin card records the

receipt, issues and the balance of every item of stores only in

physical quantities, and not in value. This feature of the bin

card is in accordance with the accepted principle that the

storekeeper true to his designation, should be responsible for

the safe keeping of the items of stores entrusted to him, and his

accounting for stores should always be in physical quantities

and not in value. The perpetual inventory system includes

continues stock taking also.

211

Stocktaking or stock verification is done mainly with a

view to finding out whether the book balances as revealed by

the stock records agree with the physical or the ground

balance. Although, therefore, stock verification is one of the

tools of inventory control, and is done for exercising control

over the stock of every item, is an integral part of material

control for the purpose of preparing the B/S, the physical

verification of stock must be done at the end of year.

Such verification at the end of the year is known as the

periodical stock taking as against the continuous stocktaking,

which is done throughout the year. The periodic stock taking

method usually adopted by concerns which cannot maintain

perpetual inventory records due to the nature of the items

which are usually stored in open yards and not in bins and as a

such, bin cards cannot be employed for them, or do not want to

maintain such records and employ stock verification staff to do

the work of stock checking throughout the year. Under this

method of stocktaking, the verification of the whole of the

stock and its valuation are accomplished only once at the close

of the financial year and difference in stock is adjusted only

once. As such, the stock in hand would tend to be accurate for

the balance sheet purposes. It is also possible to find out slow

moving items. Nevertheless, the periodic inventory has its own

disadvantage. In the first place, it becomes necessary to close

down the factory on the day of stock taking. Secondly,

discrepancies in stock cannot be corrected by an executive

action immediately as and when they occur. Thirdly, since all

212

the items are checked only once in a particular day, a surprise

verification will not be possible. Lastly, reason for the

discrepancies cannot be found out because of the long interval

between two consecutive verifications.

These disadvantages of the periodical inventory system

are overcome in the case of the perpetual inventory system.

Under this method of continuous stock verification the purpose

of verification is carried on throughout the year by a specially

trained staff. This duty is to verify a few selected items in

details so that each item is checked up a number of times

during the year. The day and time of checking not being

known to the staff, they are taken by a surprise. As such, not

only secrecy of the items to be verified cannot maintained, a

manipulation of every type can be prevented. Discrepancies

are located, reasons are ascertained, the necessary adjustment

are made in the accounting records, and correlative action is

taken then and there to prevent their recurrence. The

advantages of a continuous stocktaking where perpetual

inventory records are maintained may thus be summarized as

follows:

(i) The elaborate and costly work involved in periodic

stock taking can be avoided.

(ii) The stock verification can be done without the

necessity of closing down the factory.

(iii) The preparation of interim financial statement

becomes possible.

213

(iv) Discrepancies are easily located, and corrected

immediately.

(v) It ensure a reliable check on the stores.

(vi) It exercises a moral influence on the stores staff.

(vii) Fast and slow moving items can be distinguished and

the fixation of proper stock levels prevents not only

over-stocking, but under-stocking also.

(viii) A perpetual inventory record of the nature of the bin

cards enables the storekeeper to keep an eye on the

stock levels, and replenish the stock of every item

whenever the limit falls to the reorder level.

(ix) It provides a reliable information to the management

of the number of units, and the value of every item of

stores.

(x) It ensures secrecy of the items that are verified.

Factors Influences the Level of each Component of Inventory

Raw Material Inventory:

1. The volume of safety stock against material shortages

that interrupt production.

2. Considerations of economy in purchase.

3. The outlook for future movements in the price of

materials.

4. Anticipated volume of usage and consumption.

5. The efficiency of procurement and inventory control

function.

6. The operating costs of carrying the stocks.

214

7. The costs and availability of funds for investment in

inventory.

8. Storage capacity.

9. Re-component cycle.

10. Indigenous or foreign.

11. The lead-time of supply.

12. Formalities for importing.

Work-in-process Inventory:

1. The length of the complete production process.

2. Management policies affecting length of process time.

3. Length of process in runs.

4. Action that speed up the production process, e.g. adding

second or third production shifts.

5. Management’s skills in production scheduling and

control.

6. Volume of production.

7. Sales expectations.

8. Level of sales and new orders.

9. Price level of raw materials used, wages and other items

that enter production cost and the value added in

production.

10. Customer requirements.

11. Usual period of aging.

Finished Goods Inventory:

1. The policy of the management to gear the production to

meet the firm order in hand.

215

2. The policy to produce for anticipated orders and stock

keeping.

3. Goods required or the purpose of minimum and safety

stocks.

4. Sales policies of the firm.

5. Need for maintaining stability in production.

6. Price fluctuations for the product.

7. Durability, spoilage and obsolescence.

8. Distribution system.

9. Ability to fill orders immediately.

10. Availability of raw material on seasonal basis while

customer’s demand spread throughout the year.

11. Storage capacity.

Stores and Spares Inventory:

1. Nature of the product to be manufactured and its lead-

time of manufacture.

2. State of technology involved.

3. Consumption’s patterns.

4. Lead time of supply.

5. Indigenous or foreign.

6. Minimum and safety stock and ordering quantities.

7. Capacity utilization.

8. Importing formalities.

Some of the important inventory policies relates to :

1. minimum, maximum and optimum stocks;

2. safety stocks, order quantities, order levels and

anticipated stocks;

216

3. waste, scrap spoilage and defective;

4. policies relating to alternative use;

5. policies relating to order filling;

Measure of Effectiveness of Inventory Management

1. Size of Inventory = Total inventory/Total Current assets

2. Size of Raw material Inventory = Raw material

inventory/Total inventory

3. Size of Work in Process Inventory = Work in process

Inventory/Total Inventory

4. Size of Stores and Spares parts Inventory = Stores and

Spares parts inventory/Total Inventory

5. Size of Finished Goods Inventory = Finished goods

inventory/Total inventory

6. Overall inventory turn over ratio = Cost of goods

sold/average total inventories at cost

7. Raw material inventory turnover ratio = Annual

consumption of Raw material / Average Raw material

inventory

8. Work-in-process inventory turnover ratio = Cost of

manufacture/average work-in-process inventory at cost

9. Finished Goods inventory turnover ratio = Cost of goods

sold / Average finished stock

10. Stores and spare parts inventory turnover ratio = Stores

and Spares consumed/Average stock of stores and

spares

11. Age of Finished Goods inventory = 365/Finished Goods

inventory turnover ratio

217

12. Average age of raw material inventory = 365/Raw

material inventory turnover ratio

13. Average age of Work-in-Process inventory = 365/Work-

in-Process inventory turnover ratio

14. Age of Stores and spare parts inventory = 365/Stores and

spare parts inventory turnover ratio

15. Inventory holding period = 365/Inventory turn over ratio

Control and Review

The efficiency of inventory control affects the flexibility of

the firm. There are several tools of inventory control. Some of

these are:

(1) The economic order quantity which enables

determination of optimal size of order to place on the

basis of demand or usage of the inventory.

(2) The technique of safety stocks to overcome problems of

uncertainty.

(3) The order point formula, which tells us, the optimal point

at which to reorder a particular item of inventory.

Together, these tools provide the means for determining

an optimal average level of inventory for the firm.

Ratio analysis has a wider application as a measure of

inventory control among most manufacturing firms. Some of

the important ratios are explained below:

(1) Inventory to Sales (Total Inventory/Sales for the Period)

The ratio explains variations in the level of investment.

An increase in inventory levels, substantially beyond that

218

which might be expected from an increase in sales, may reflect

such phenomena as the result of a conscious policy shift to

higher stock levels, of unintended accumulation of unsold

stocks, and of inventory speculation, or simply stocking in

anticipation of an almost certain surge of orders.

(2) Inventory Turnover (Cost of Goods Sold/Average

Inventory)

The ratio tells us the rapidity with which the inventory is

turned over into receivables through sales. Generally, the

higher the inventory turnover, the more efficient the

management of a firm is. However, a relatively high inventory

turnover ratio may be the result of too low a level of inventory

and frequent stock outs. Therefore, the ratio must be judged in

relation to the past and expected future ratios of the firm and in

relations of similar firms or the industry average or both.

(3) Sales to Inventory (Annual Net Sales/Inventory at the

End of Fiscal Period)

The ratio indicates the volume of sales in relation to the

amount of capital invested in inventories. When inventory for a

firm is larger in relation to sales (the condition which causes it

to have a lower net sales to inventory ratio than other firms)

the firm’s rate of return is less since it has more working capital

tied up in inventories than has the firm with a higher ratio.

(4) Inventory to Current Assets (Total Inventory/Total

Current Assets)

The ratio indicates the amount of investment in inventory

per rupee of current assets investment. Generally an increasing

219

proportion of inventory is indicative of inefficient inventory

management. The ratio may also indicate the state of liquidity

position of concern. The lower the inventory to current assets

lowers the liquidity as compared to other current assets, viz.,

receivables, cash and marketable securities.

(5) Inventories Expressed in Terms of Number of Days Sales

(Inventory/Sales x 365)

The ratio indicates the size of inventory in terms of

number of days sales. For this purpose first the sales per day

are calculated and inventory is divided by the amount of sales

per day. The increasing inventory in terms of number of days

sales may indicate either accumulation of inventory or decline

in sales. Inventory for this purpose is assumed to include

finished goods only. While the former situation signifies poor

inventory management, the later indicates the poor

performance of the marketing department.

(6) Sundry Creditors to Inventory (Sundry

Creditors/Inventory)

The ratio reveals the extent to which inventories are

procured through credit purchases. Inventories for this

purpose are assumed to include raw materials and stores and

spares only. If the ratio is less than unity, it reveals that the

credit available is lower than the total inventory required. It

also explains the extent of inventory procured through cash

purchases. Indirectly it emphasizes the inventory financing

policy of the firm. If the ratio is more than one, it explains that

the entire inventory is purchased on credit.

220

(7) Inventory to Net Working Capital (Inventory/Net

Working Capital)

The ratio explains the amount of inventory per rupee of

equity/long-term financed portion of current assets. A higher

ratio may mean greater amount of net working capital

investment in inventory. In order to control each category of

inventory, the following ratios can be calculated.

The size of inventory of selected cement companies has

been presented in table 6.1.

Table 6.1

Size of Inventory of Selected Cement Companies for the years from 2003-04 to 2007-08

Year ACC Mangalam Gujarat

Ambuja Shree Cement

India Cement

Industry Average

2003-04 0.27 0.37 0.51 0.40 0.37 0.38 2004-05 0.31 0.41 0.35 0.38 0.26 0.34 2005-06 0.27 0.40 0.31 0.29 0.19 0.29 2006-07 0.32 0.47 0.36 0.33 0.14 0.33 2007-08 0.34 0.51 0.41 0.22 0.12 0.32 Company Average

0.31 0.43 0.39 0.32 0.22 0.33

Source: Based on data provided in Appendix

Five cement companies under study have kept at

different levels of inventory during the study period from

2003-04 to 2007-08. Table 6.1 gives a clear picture of inventory

kept by the five companies. The size of inventory of all the

cement companies shows fluctuating trend throughout the

study period except India Cement that shows decreasing trend.

The minimum size of inventory in ACC is 0.27 (2003-04).

Mangalam is 0.37 (2003-04), Gujarat Ambuja is 0.31 (2005-06),

221

Shree Cement is 0.22 (2007-08) and in India Cement is 0.12

(2007-08). The maximum size of inventory in ACC is 0.34 (2007-

08), Mangalam is 0.51 (2007-08), Gujarat Ambuja is 0.51 (2003-

04), and Shree Cement is 0.40 (2003-04) and in India Cement is

0.37 (2003-04).

The size of Raw Material Inventory of selected

companies has been given in table 6.2.

Table 6.2

Size of Raw Material Inventory of Selected Cement Companies for the years from 2003-04 to 2007-08


Ambuja Shree Cement

India Cement

Industry Average

2003-04 0.14 0.11 0.04 0.15 0.07 0.10 2004-05 0.12 0.07 0.04 0.23 0.08 0.11 2005-06 0.15 0.08 0.04 0.30 0.08 0.13 2006-07 0.15 0.05 0.04 0.25 0.10 0.12 2007-08 0.13 0.03 0.05 0.13 0.11 0.09 Company Average

0.14 0.07 0.04 0.21 0.09 0.11



different levels of raw material inventory during the study

period from 2003-04 to 2007-08. Table 6.2 gives a clear picture

of raw material inventory kept by the five companies. The size

of raw material inventory of all the cement companies shows

fluctuating trend throughout the study period except Gujarat

Ambuja and India Cement which shows decreasing trend. The

minimum size of raw material inventory in ACC is 0.12 ((2004-


04 to 2006-07), Shree Cement is 0.13 (2007-08) and in India

Cement is 0.07 (2003-04). The maximum size of raw material

222

inventory in ACC is 0.15 (2005-06 and 2006-07). Mangalam is

0.11 (2003-04), Gujarat Ambuja is 0.05 (2007-08), and Shree

Cement is 0.30 (2005-06) and in India Cement is 0.11 (2007-08).

The size of Stores and Spares Inventory of selected

companies have been presented in Table 6.3

Table 6.3

Size of Stores and Spares Inventory of Selected Cement Companies

for the years from 2003-04 to 2007-08

Year ACC Mangalam Gujarat Ambuja

Shree Cement

India Cement

Industry Average

2003-04 0.51 0.56 0.68 0.52 0.60 0.57 2004-05 0.48 0.60 0.64 0.36 0.49 0.52 2005-06 0.51 0.52 0.68 0.45 0.48 0.53 2006-07 0.40 0.56 0.66 0.45 0.39 0.49 2007-08 0.42 0.49 0.61 0.67 0.39 0.51 Company Average

0.46 0.54 0.65 0.49 0.47 0.53



different levels of stores and spare parts inventory during the

study period from 2003-04 to 2007-08. Table 6.3 gives a clear

picture of stores and spare parts inventory kept by the five

companies. The size of stores and spare parts inventory of all

the cement companies shows fluctuating trend throughout the

study period except India Cement which shows decreasing

trend. The minimum size of stores and spare parts inventory in

ACC is 0.40 (2006-07), Mangalam is 0.49 (2007-08), Gujarat

Ambuja is 0.61 (2007-08), Shree Cement is 0.36 (2004-05) and in

India Cement is 0.39 (2006-07 and 2007-08). The maximum size

of stores and spare parts inventory in ACC is 0.5 (2003-04 and

223

2005-06), Mangalam is 0.60 (2004-05), Gujarat Ambuja is 0.68

(2003 04 and 2005-06) and Shree Cement is 0.67 (2007-08) and in

India Cement is 0.60 (2003-04).

The Size of Works of Process Inventory of Selected

Companies has been given in Table 6.4.

Table 6.4

Size of Work of Process Inventory of Selected Cement Companies for the years from 2003-04 to 2007-08


Ambuja Shree Cement

India Cement

Industry Average

2003-04 0.12 0.23 0.19 0.23 0.23 0.20 2004-05 0.17 0.26 0.22 0.15 0.31 0.22 2005-06 0.16 0.33 0.06 0.09 0.31 0.19 2006-07 0.22 0.21 0.18 0.20 0.26 0.21 2007-08 0.25 0.29 0.22 0.03 0.31 0.22 Company Average

0.18 0.26 0.17 0.14 0.28 0.21



different levels of Work-in-Process inventory during the study

period from 2003-04 to 2007-08. Table 6.4 gives a clear picture

of Work in Process inventory kept by the five companies. The

Work in Process inventory of all the cement companies shows

fluctuating trend throughout the study period. The minimum

Work-in-Process inventory in ACC is 0.12 (2003-04). Mangalam

is 0.21 (2006-07), Gujarat Ambuja is 0.06 (2005-06), Shree

Cement is 0.03 (2007-08) and in India Cement is 0.23 (2003-04).

The maximum Work-in-Process inventory in ACC is 0.25 (2007-


05 and 2007-08), and Shree Cement is 0.23 (2003-04) and in

India Cement is 0.31 (2004-05, 2005-06, and 2007-08).

224


different levels of finished goods inventory during the study

period from 2003-04 to 2007-08 has been presented in Table 6.5.

Table 6.5

Size of Finished Goods Inventory of Selected Cement Companies for the years from 2003-04 to 2007-08


Ambuja Shree Cement

India Cement

Industry Average

2003-04 0.23 0.10 0.09 0.10 0.09 0.12 2004-05 0.23 0.07 0.09 0.26 0.12 0.15 2005-06 0.19 0.07 0.22 0.16 0.12 0.15 2006-07 0.24 0.18 0.12 0.11 0.24 0.18 2007-08 0.21 0.20 0.12 0.17 0.19 0.17 Company Average

0.22 0.12 0.13 0.16 0.15 0.16


Table 6.5 gives a clear picture of finished goods inventory

kept by the five companies. The size of finished goods

inventory of all the cement companies shows fluctuating trend

throughout the study period. The minimum size of finished

goods inventory in ACC is 0.19 (2005-06), Mangalam is 0.07

(2004-05 and 2005-06), Gujarat Ambuja is 0.09 (2003-04 and

2004-05), Shree Cement is 0.10 (2003-04) and in India Cement is

0.09 (2003-04). The maximum size of finished goods inventory

in ACC is 0.24 (2006-07), Mangalam is 0.20 (2007-08).


different levels of inventory holding period during the study

period from 2003-04 to 2007-08 has been given in Table 6.6.

225

Table 6.6 Inventory holding period of Selected Cement Companies

for the years from 2003-04 to 2007-08 (In days)


Shree Cement

India Cement

Industry Average

2003-04 84 52 153 136 125 110 2004-05 87 49 135 135 157 113 2005-06 75 49 113 99 119 91 2006-07 71 43 102 97 113 85 2007-08 79 62 106 78 121 89 Company Average

79 51 122 109 127 98


Table 6.6 gives a clear picture of inventory holding

period kept by the five companies. The inventory-holding

period of all the cement companies shows fluctuating trend

throughout the study period expect Shree Cement that shows

decreasing trend. The minimum inventory holding period in

ACC is 71 (2006-07), Mangalam is 43 (2006-07), Gujarat Ambuja

is 102 (2006-07), Shree Cement is 78 (2007-08) and in India

Cement is 85 (2006-07). The maximum inventory-holding

period in ACC is 87 (2004-05), Mangalam is 62 (2007-08),

Gujarat Ambuja is 106 (2007-08), and Shree Cement is 97 (2003-

04) and in India Cement is 113 (2004-05).

Inventory Turnover (Cost of Goods Sold/Average Inventory)

The ratio tells us the rapidity with which the inventory is

turned over into receivables through sales. Generally, the

higher the inventory turnover, the more efficient the

management of a firm is. However, a relatively high inventory

turnover ratio may be the result of too low a level of inventory

226

and frequent stock outs. Therefore, the ratio must be judged in

relation to the past and expected future ratios of the firm and in

relations of similar firms or the industry average or both.


different levels of inventory turnover during the study period

from 2003-04 to 2007-08 has been given in Table 6.7.

Table 6.7 Inventory Turnover of Selected Cement Companies

for the years from 2003-04 to 2007-08


Shree Cement

India Cement

Industry Average

2003-04 4.34 7.03 2.39 2.69 2.92 3.87 2004-05 4.20 7.50 2.69 2.70 2.33 3.88 2005-06 4.86 7.46 3.22 3.70 3.08 4.46 2006-07 5.11 8.55 3.59 3.75 3.24 4.85 2007-08 4.63 5.93 3.44 4.67 3.01 4.34 Company Average

4.63 7.29 3.07 3.50 2.92 4.28


Table 6.7 gives a clear picture of inventory kept by the

five companies. The inventory turnover of all the cement

companies shows fluctuating trend throughout the study

period expect Shree Cement that shows increasing trend. The

minimum inventory turnover in ACC is 4.20 (2004-05),


Shree Cement is 2.69 (2003-04) and in India Cement is 2.33

(2004-05). The maximum inventory turnover in ACC is

5.11(2006-07), Mangalam is 8.55 (2006-07), Gujarat Ambuja is

3.59 (2006-07), and Shree Cement is 4.67 (2007-08) and in India

Cement is 4.67 (2006-07).

227

Sales to Inventory (Annual Net Sales/Inventory at the End of

Fiscal Period)

The ratio indicates the volume of sales in relation to the

amount of capital invested in inventories. When inventory for a

firm is larger in relation to sales (the condition which causes it

to have a lower net sales to inventory ratio than other firms)

the firm’s rate of return is less since it has more working capital

tied up in inventories than has the firm with a higher ratio.


different levels of Sales to total inventory during the study

period from 2003-04 to 2007-08 has been shown in Table 6.8.

Table 6.8

Sales to Total Inventory of Selected Cement Companies for the years from 2003-04 to 2007-08


Ambuja Shree Cement

India Cement

Industry Average

2003-04 7.63 9.85 4.57 4.19 5.65 6.39 2004-05 7.37 8.58 6.57 5.41 4.90 6.57 2005-06 9.55 9.14 9.14 8.12 7.53 8.70 2006-07 8.10 9.49 7.57 6.12 7.36 7.73 2007-08 8.24 6.91 7.86 13.80 7.35 8.83 Company Average

8.18 8.79 7.14 7.53 6.56 7.64


Table 6.8 gives a clear picture of Sales to Total inventory

kept by the five companies. The Sales to Total inventory of all

the cement companies shows fluctuating trend throughout the

study period. The minimum Sales to Total Inventory in ACC is

7.37 (2004-05). Mangalam is 6.91 (2007-08), Gujarat Ambuja is

4.57 (2003-04), Shree Cement is 4.19 (2003-04) and in India

Cement is 4.90 (2004-05). The maximum Sales to Total

228

Inventory in ACC is 9.55 (2005-06), Mangalam is 9.85 (2003-04),

Gujarat Ambuja is 9.14 (2005-06), and Shree Cement is 13.80

(2007-08) and in India Cement is 7.53 (2005-06).

Inventory to Net Working Capital (Inventory/Net Working

Capital)

The ratio explains the amount of inventory per rupee of

equity/long-term financed portion of current assets. A higher

ratio may mean greater amount of net working capital

investment in inventory.

The Inventory of net Working Capital of selected cement

companies has been given in table 6.9.

Table 6.9

Inventory to net Working Capital of Selected Cement Companies for the years from 2003-04 to 2007-08


Ambuja Shree Cement

India Cement

Industry Average

2003-04 0.85 0.55 0.74 0.69 0.66 0.70 2004-05 0.66 0.70 0.47 0.64 0.35 0.56 2005-06 0.63 0.71 0.54 0.46 0.28 0.52 2006-07 0.91 1.13 0.66 0.48 0.20 0.71 2007-08 0.97 -2.09 0.86 0.35 0.16 0.25 Company Average

0.80 0.24 0.86 0.52 0.33 0.55


The inventory of net working capital of all the cement

companies shows fluctuating trend throughout the study

period except India Cement, which shows decreasing trend.

The minimum value of inventory in net working capital in

ACC is 0.63 (2005-06), Mangalam is -2.09 (2007-08), Gujarat

Ambuja is 0.47 (2004-05), Shree Cement is 0.35 (2007-08) and in

India Cement is 0.16 (2007-08). The maximum value of

229

inventory to net working capital in ACC is 0.97 (2007-08),


and Shree Cement is 0.69 (2003-04) and in India Cement is 0.66

(2003-04).

230

Select References:

S.E. Bolter, Managerial Finance, (Boston: Hovyhlon Mifflin Co., 1976). American Institute of Certified Public Accounts: According Research and Terminology Bullet New York (1961). Black Champion U. Miller, Accounting in Business Decisiions-Theory Method and Use, Englewood Cliffs New Jersey, Prentice Hall, Inc., (1961). S. Venu, Lokudyog (1972). Howard Leslie R., Working Capital: Its Management and Control, London MacDonald and Evan Ltd., 1971. L.R. Howard, Working Capital – Its Management and Control, (London : Macdonald & Evan Ltd., 1971). R.S. Chadda, Inventory Management in India, (Mumbai Allied Publishes, 1971). Martin K. Star and David W. Miller, Inventory Control, (NJ, Jheary and Phensice, Englewood cliffs, Prentice Hall, 1962). P.K. Ghosh and G.S. Gupta, Fundaments of Management Accounting, (New Delhi: National Publishing House, 1979). R.S. Chadda provides the following useful guidelines for selective control (Chadda R.S.: Inventory Management in India). P. Hopal Prishan L.M. Sundersan, Material Management-An Integrated Approach, (New Delhi): Prentice Hall and India 1984.

231

Buchar, Joseph and Koenisbgerg, Ernest, Scientific, Inventory Management, (New Delhi: Prentice Hall of India, 1966). H.J. Wheldon, Cost Accounting and Costing Methods, (London : McDonald and Evans Ltd., 1948).

232

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